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57% of America's Best Income Stocks are in THIS Sector

This select group of 21 stocks might be the holy grail of
investments: each has delivered high yields AND sizeable capital
gains.

Conventional wisdom says you have to choose one or the other.
Income investors usually think they have to forfeit higher returns
in exchange for a stable
dividend
. But this is a misconception.

We did some research a few weeks ago to uncover the best-performing
income stocks on the
market
. To do that, we narrowed the high-yield universe down by
evaluating only stocks with yields of 6% or more. From there, we
identified the standouts that earned the highest total returns
during the past 10 years.

Now, everyone knows this has been a difficult stretch for most
investors. In fact, some have referred to the past 10 years as the
"lost decade." But we found 21 elite stocks that made it look like
we've been riding a nonstop
bull market
. Here's a sampling of what they look like:

Hugoton Royalty (NYSE:
HGT
)
, a trust that generates 87% of its income from natural-gas
properties, pays a
yield
of 6.3% and has returned 347% since 2001.

United Online (Nasdaq:
UNTD
)
, an Internet-based provider of consumer products and services,
has returned 426% with help from its 7.1% dividend.

BP Prudhoe Bay (NYSE:
BPT
)
conveys an ownership stake in oil and gas wells located in
Alaska's legendary Prudhoe Bay. Thanks to its 8.6% yield,
investors have enjoyed a return of 2,320% during the past
decade.

But it's not so much the raw list of names and tickers that I want
to tell you about. Rather, I want to share an unmistakable trend
that emerged as we compiled this leader board of high-yield
winners.

As it turns out, 12 of the 21 best-performing income stocks in the
United States in the past decade were pulled from the energy field.
That's 57% of the total list.

Keep in mind, the energy sector only accounts for about 15% of all
domestic stocks yielding 6% or more. So for this one group to
represent more than half of the biggest winners seemed highly
disproportional.

This raises the question... why have dividend-paying energy stocks
done so well?

It's not just their lofty distributions. After all, every stock we
examined offered a minimum 6% payout. Could it be that energy
stocks in general have been on fire?

Well, yes, energy stocks have done pretty well during the past 10
years. That's not surprising -- it hasn't been THAT long since
gasoline was under $1 a gallon and oil was priced less than $30 per
barrel. It makes sense energy companies would
profit
handsomely in this sort of environment.

But if you dig deeper, then you find an even more startling trend.

As a group, energy stocks have returned 290% in the past 10
years... an impressive number under any condition. But, if you take
this list and limit it only to dividend payers -- then the average
return jumps to 589%.

In other words, energy stocks that pay dividends doubled the
performance of what was already one of the market's strongest
sectors.

If you think about it though, then this spectacular run makes
sense.

Energy is in one of the biggest bull markets we've ever seen. But
unlike some other historic bull markets, such as the high-flying "
New Economy
" of the late 1990s, fundamentals are driving prices this time --
not delusions.

Now you may be thinking... does this
mean
energy has already seen its heyday?

The simple answer is I don't think so. In fact, I think energy is
still in the early innings of its bull market.

If you don't believe me, just look at China. China's new car sales
volume
in 2010 leapt 32% to 18 million new cars. This means nearly 50,000
new vehicles are hitting the road every day...

But this is just a drop in the bucket to what we'll see in the
future.
Ford (NYSE:
F
)
projects China's auto sales will reach 32 million by 2020 -- 28% of
the entire global market.

And China is not the only factor. Nor are cars and trucks the only
source of demand.

Daily global oil consumption has swelled from 77 million barrels in
2001 to 89 million today. And trust me when I say that
emerging-market demand is pushing this
burn rate
straight to 100 million per day and beyond. Where will that extra
11 million barrels per day come from? Good question.

Most of the largest oil fields are in a terminal state of decline.
In fact, the International Energy Association (IEA) has concluded
output from 800 top oil fields is shrinking 6.7% annually.

The combination or rising demand and thinning supplies paints a
pretty clear picture. Oil prices are ultimately headed higher, or
at the very least are likely to remain elevated. So don't let the
fears of a global economic slowdown dampen your outlook.

We've seen record-high unemployment, sagging consumer spending and
too many corporate bankruptcies to count here in the United States.
If this weren't enough, the market has also been rocked by violent
political uprisings in the Middle East, crippling debt woes in
Europe and our own inability to corral
deficit
spending.

But through it all, global demand for energy has been, and
continues to be, staunch. In fact, we've only seen one decline in
annual energy consumption in the past 30 years. Just one. That was
a trifling 1.1% dip in 2009, as the world
economy
struggled to regain its footing from the worst downturn since the
Great
Depression
.

That being said, it's no wonder dividend-paying energy stocks have
performed so well. Because dividends are such a critical tool in
building wealth, it stands to reason the energy sector, with an
abundance of high yielders, is a fertile hunting ground for
investors.

There are no guarantees, of course. In this market, anything can
happen (as the past few months have proven). Energy prices could
remain volatile as signs of economic deceleration in developed
economies continue to hang over financial markets.

Action to Take -->
L ooking from a long-term perspective, dwindling reserves and
rising global demand will inexorably lead to higher oil prices. And
judging by the past 10 years of stock-market data, you can only
reach one conclusion: the combination of robust yield and
commodity-driven share price gains seems to make good things happen
time and time again.

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